A wall in the Hungarian reservoir that burst last week triggering a flood of toxic sludge is close to collapse, the country's prime minister warned yesterday.

Viktor Orban described the situation as dramatic and warned that a repeat of last week's flood, in which seven people are known to have died, was highly likely. He said the town of Kolontar, which sits next to the reservoir and was badly damaged by last Monday's flood, had been evacuated as a precaution.

"Cracks have appeared on the northern wall of the reservoir which makes it very likely that the whole wall will collapse," Orban said. "We have started to build dams in the direction of the populated areas to slow the flow of the material in case of a new incident."

Experts have estimated that, depending on the density of the sludge, an estimated 500,000 cubic metres more of red sludge could escape from the reservoir if the wall collapses – about half the amount of the initial flood.

"Human errors and mistakes must exist ... and the [legal] consequences will be very serious," said Orban.

The red sludge, which has devastated creeks and rivers near the spill site, entered the Danube on Thursday, moving downstream towards Croatia, Serbia and Romania. However, samples taken every few hours to measure damage from the spill suggest the sheer volume of water in the Danube appeared to be blunting the sludge's immediate impact.

The risk of lasting environmental damage remains at the site of the spill. Tests by Greenpeace show high concentrations of heavy metals in the sludge. MAL Rt, the company that owns the Ajkai Timfoldgyar plant where the spill occurred, has rejected claims that it should have taken more precautions.